What is opportunity cost?

• A. The money you save each month.
• B. The value of the best alternative forgone when making a decision.
• C. The interest earned on a savings account.
• D. The risk associated with an investment.

Answer: (B)

Opportunity cost is the value of the next best option you give up when you make a decision. It captures the trade-off you face with every choice—the benefit you would have gained from the alternative not chosen.

In this case, the description that matches opportunity cost is the idea of the value of the best alternative forgone when you decide what to do. That’s the core idea: you’re weighing what you miss out on by choosing one path over another.

The other ideas aren’t about what you sacrifice by choosing one option over another. Saving money you don’t spend is just savings, not the forgone benefit. The interest earned is a return on your chosen path, not the value of the alternative you gave up. The risk of an investment describes potential downsides, not what you gave up by making a decision.